Shares of Nikola Corporation (NASDAQ: NKLA) opened 8% lower on Thursday morning following news that the company’s founder Trevor Milton has been indicted by federal prosecutors in the Southern District of New York (SDNY) as well as by the SEC.
Milton is accused of fraud and making false statements, misleading investors regarding the viability of Nikola’s technology.
Milton had already stepped down and departed the company late last year amid the controversy, after activist short seller Hindenburg Research had released a research report that detailed how Nikola’s product demonstrations were faked.
A truck rolling down a hill
Specifically, Milton is accused of targeting retail investors (individuals using apps like Robinhood, in particular) on social media and other media appearances, promoting Nikola and claiming that the hydrogen fuel cell truck, dubbed the Nikola One, was commercially viable.
Hindenburg said that Nikola’s truck demo merely showed the vehicle rolling downhill and that the truck was not actually driving at all.
The company’s response did not inspire much confidence either. “Nikola never stated its truck was driving under its own propulsion in the video,” the company wrote at the time. Nikola’s claims had even convinced auto giant General Motors (NYSE: GM) to invest in the company, but the legacy automaker backtracked on the partnership following the revelations.
“From approximately November 2019 through September 2020, Milton’s statements in tweets and media appearances, individually and taken together, painted a picture of Nikola that diverged widely from its then-current reality,” according to the SEC complaint.
The SEC’s legal filing includes a handful of allegations against Milton, including:
- Falsely claiming that the Nikola One could be “driven under its own power.”
- Falsely claiming that Nikola could produce hydrogen and “obtained electricity at costs that made hydrogen production profitable.”
- Falsely claiming that Nikola had already secured billions of dollars worth of orders.
- Falsely claiming that Nikola trucks would have a total cost of ownership that was 20% to 30% lower than comparable diesel vehicles.
Nikola went public by merging with a special purpose acquisition company (SPAC) in a deal that secured a 25% stake in the company for Milton. Securities regulators argue that Milton’s motive was to inflate Nikola’s stock price, allowing him to pocket tens of millions of dollars. At Nikola’s peak, Milton’s shares were worth over $1 billion.
“Milton’s focus remained on the stock price and his attempts to influence the retail investors who he viewed as driving it,” the SEC writes. “To that end, Milton tracked the daily number of new Robinhood users who held Nikola stock.”
While Milton left Nikola many months ago, the ongoing skepticism around the company’s technology is still quite relevant to investors. Here is Nikola’s official statement in response to the indictments:
“Trevor Milton resigned from Nikola on September 20, 2020 and has not been involved in the company’s operations or communications since that time. Today’s government actions are against Mr. Milton individually, and not against the company. The company has cooperated with the government throughout the course of its inquiry. We remain committed to our previously announced milestones and timelines and are focused on delivering Nikola Tre battery-electric trucks later this year from the company’s manufacturing facilities.”
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